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Play These Inverse ETFs if Markets Turn Rocky

Overvaluation concerns have been rife in the U.S. equity market for quite some time now. Along with a bunch of analysts, Fed chief Yellen also pointed at rich asset valuations.

Although superficially these concerns are not reflected in stock market behavior as evident by investors’ interest toward inverse VIX ETPs, recent developments give another signal.

Along with Yellen, the ECB head Mario Draghi sent hawkish signals for their respective monetary policies. This may push up bond yields and cause gyrations in the equity market.

In fact, if we believe that continued easy money policy and availability of cheap money inflows created a bubble in the market, we should find gradual policy tightening feasible. This can take the assets back to fair valuation.

The International Monetary Fund (IMF) recently lowered its economic growth projections for the U.S. from 2.3% to 2.1% this year. The agency held uncertainty related to Trump’s policies responsible for this cut. As per IMF officials, “it became evident that many details about these plans are still undecided."

This seems to be quite a grave concern since the broader market rallied on hopes of Trump-induced fiscal reflation. But lately, the President’s policies have faced political disagreement, making the all-important tax reform uncertain (read: Best ETF Strategies for Trump Uncertainty).

Plus, worries over the oil patch are back with surging U.S. output overshadowing the efforts of the ongoing OPEC output cut program. Significant upside in oil prices is less likely in the near term. The once-soaring tech sector too is sliding occasionally on valuation issues (read: Trump Slump to Oil Slide: Top ETF Stories of First-Half 2017).

Following Yellen and Draghi’s comments, in the U.S., the yield on the 10-year Treasury note rose 6.3 basis points to 2.198% on June 27 from previous the day, the highest since the Fed meeting in mid-June. SPDR S&P 500 ETF SPY,SPDR Dow Jones Industrial Average ETF DIA and PowerShares QQQ ETF QQQ lost about 0.8%, 0.5% and 1.8%, respectively, on June 27.

Inverse ETFs in Focus

All these worries are expected to keep the stock market volatile. Investors can ride out this volatility through inverse ETFs. While there are several options available in the space, we have highlighted five ETFs that are widely spread across a number of sectors and are not concentrated on a particular sector or industry.

ETFs to Play

Short S&P500 ETF SH

This fund provides unleveraged inverse exposure to the daily performance of the S&P 500 index.

Direxion Daily S&P 500 Bear 1x Shares ETF SPDN

The fund seeks daily investment results of 100% of the inverse (or opposite) of the performance of the S&P 500 Index.

Short Dow30 ETF DOG

It offers inverse unleveraged exposure to the Dow Jones Industrial Average Index.

Ranger Equity Bear ETF HDGE

This ETF is active and does not track a benchmark. Its objective is capital appreciation through short sales of domestically traded equity securities.


It offers inverse unleveraged exposure to the NASDAQ-100 Index.

Bottom Line

As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all the Inverse Equity ETFs here).

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